By Powerbuy // 13 March 2014 // Related Categories: Tips
Make sure you are well prepared before you finance that shiny new car.
No 1: You need produce a good credit score to obtain car finance.
Your credit score is based on your history of all your borrowings you have made to date including credit cards, mortgage or personal loans, payment history of all suppliers including mobile phone, electricity and gas and rent. The higher your score the better your report is, the less risk you pose to creditors and the lower interest rate you get. If you have a file with history of poor debt repayment, you will be a high credit risk customer, so you may be refused credit or may have to pay a higher interest rate.
No 2: Push the boundaries and shop around for the best deal
Be aware that lenders may tempt you when quoting car finance with a low monthly payment, but lock you into a high interest rate, which means you will pay more over the long run. Look for a car loan that is being offered with the lowest average % interest rate. Start with your asking you bank for a quote for car finance, then the car dealership where you are purchasing the car and compare the two.
No 3: Understand the loan term.
Be aware if part of the car finance includes the requirement for a lump sum payment to be made at the end of the car loan before you own the car. This lump sum payment is known as a ‘Balloon Payment’ or ‘Residual Value’. This lump sum payment will be in addition to your monthly payments. Note, this is optional. You do not need to have a Balloon Payment and you may find it difficult to have a lump sum of cash to make this final payment and then you will need to obtain further finance to repay this payment.
No 4: Be wary of hidden costs.
Understand the terms and conditions of the finance including the finance set up costs, loan protection insurance, warranties, penalties for missed repayments or paying the car loan off early. Only pay for what you need.
No 5: Understand the true running costs for a car – not just the finance costs.
Full running costs include, registration, insurance, CTP, petrol, repairs, road tolls and roadside assistance. Ensure you have a budget for these costs.
No 6: Avoid risky moves by:
- making extra repayments if you can as this will save you interest (provided there is no penalty to do so)
- sign up for and keep the car comprehensively insured. Accidents and thefts happen and you do not want to end up paying a loan for a car you don’t have
- if you find yourself having problem repaying the car loan, act quickly as ignoring the situation can make matters worse. Don’t stop paying, continue to pay what you can and contact the loan provider to advise of your situation and work towards a solution.
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